Germany: Can the next government reignite growth?

Suffering from its longest stagnation period in decades , the German economy is desperately in need for a genuine re boot. Whether the next government can engineer such a re boot is, however, anything but clear. For one, there is disagreement among the main parties about the root cause of the stagnation and, consequently, how to address these. Moreover, some of the structural challenges the German economy faces are arguably very difficult to tackle and may need a lot of political capital to be spend . Not an enticing outlook for the next government. To be sure, this does not mean that the outcome of the elections on February 23 will not matter or that the next government will have no “agency” in determining the outlook for the German economy. Based on latest polls , a coalition between the centre-right CDU/CSU and the centre-left SPD seems to be the most likely outcome, followed by a coalition between the CDU/CSU and the Greens. But a three-party coalition between CDU/CSU, SPD and Greens cannot be ruled out either . None of these potential coalitions will work smoothly , though the pressure to “deliver” in the face of a growing support for the far-right AfD should enforce some discipline. There are some areas where we would expect sufficient common ground for the next government. Tax cuts, some reform of the debt brake, immigration and a renewed push to reduce red-tape are such areas. A potential r eform of the social security and pension system and a recalibration of the energy transition will be dependent on which coalition will be formed. Coalition talks are likely to be complicated and may stretch beyond Easter.